A Good Suggestion For Funding Journalism... And A Great Explanation For Why Micropayments Don't Work

from the fantastic dept

With a bunch of old school journalism industry guys suddenly rehashing the old and tired debate over micropayments for news, the folks over at Freakonomics put together a little "quorom" where they
asked four different people, with varying viewpoints, about the whole "micropayments for news" issue. Two of them, William Baker and Alan Mutter, support micropayments. I find their arguments not particularly compelling, as they both seem to focus on why newspapers need money, not why anyone would want to pay. On the other side of the coin is Clay Shirky and Marshall W. Van Alstyne, a professor at BU. Shirky, not surprisingly, does an excellent job rehashing his reasons for why micropayments don't work, but I have to say that Van Alstyne's reasoning is even better (and quite eloquent):

Micropayments won't solve newspapers' pay-or-perish problem, at least not under current proposals. There are many reasons why micro-scalping readers won't work, but let me start with two: the unique properties of information goods, and inefficiency.

News is not like an iTunes song; it's perishable. Today's front page is tomorrow's fish wrap, and we don't need to replay it. If anything, a reader benefits more from a second source than repetition from the first. Facts are delivered; songs and movies are created. Facts also can't be owned, so when the Internet places geographically dispersed media in direct competition, the price of facts falls to marginal cost. In digital markets, that's zero.

Micropayments introduce friction into an otherwise frictionless world. This means that no matter how efficient they become, it is more efficient to bundle. If a person makes one or two transactions with a news source, it's more efficient to aggregate lots of them and bill a single advertiser once. If a person makes frequent transactions, it's more efficient to aggregate those and bill that person once as a subscription. Any increase in micropayment efficiency improves bundling efficiency at least as much, because the gains accrue over more transactions.

Putting micropayments on news is like putting tollbooths on an open ocean. Internet users, awash in a sea of information, will avoid new barriers by navigating around them. And frankly, the interests of a free society are rarely served by building barriers between the people and their news.

And, unlike the actual newspaper guys, Van Alstyne actually then makes suggestions for ways that newspapers can both add value and give someone (if not the consumer) a reason to buy. He has three suggestions, and you can click through to read them all, but I found the last one the most interesting:

Invert the whole business. Use the friction of micropayments to solve a consumer problem and stem the flood of information from advertisers vying for their attention. Advertisers can bid for limited units of people's time. This increases ad revenues and helps match particular ads to particular people. Vendors will bid low to rent New York apartments to sports fans checking scores for the Oakland A's, but bid high to offer next week's tickets. Publishers need to give up on the idea of profiting from distribution and focus on the idea of matching people to content.

The trick is not to add new types of costs, but to add new types of value.

What a surprise. It looks like the folks outside the industry understand how to make the industry work better than those inside of it.

Reader Comments

Jon Stewart

Was watching the daily show (can't remember which night) and jon mentioned an idea of doing micropayments but instead of selling the articles to the consumer(or perhaps instead of only doing that) they sell them to news aggregators who then use ad's or other methods of creating income (subscriptions, tying in to scarce goods ect.) and it's essentially transparent to the consumer. Doesn't sound like a horrible idea to me.

Re: Re: Jon Stewart

Different idea, same show. That link is for billing people who SEND the paper traffic. What Stewart proposed is news outlets selling other websites the news. Sorta becoming a version of the Associated Press. NYTs sells Techdirt, for instance, a subscription. Techdirt gets rights to post an entire writeup in completion without linking back to NYT. just add a line at the end "from NYT".

I agree its a silly idea, but it is a better idea than having websites pay papers for sending them traffic.

Newspaper people don't understand newspapers

>>It looks like the folks outside the industry understand how to make the industry work better than those inside of it.

Actually, that has been my experience. A few years ago I was doing some consulting work for a paper. I was talking to one of the senior managers about comics. He said they were going to cut a lot of the comics. They had done a survey and found out which ones not many people read, and they were going to cut them. Dilbert was one of the ones that not many people said they read.

I pointed out that the comic page was about getting people to pick up the paper and flip though to paper to find them. You need to have something on the comic page that appeals to everyone, even though a lot don't get read by everyone. I asked if the paper was interested in having males earning over 50,000 read his newspaper. Those were the people who read Dilbert. That group probably skips over Mary Worth and Gasoline Alley (the two most popular) but their reason for opening the paper in the morning is Dilbert. Get rid of Dilbert and get rid of that demographic. He said something like "That makes a lot of sense."

Re: Newspaper people don't understand newspapers

"And we wonder why so many businesses ... "

Next time you do consulting work for a newspaper, ask the Demographics of the subscription base why the read or don't read the newspaper.
Report that back to the newspaper. AHBelo was genuinely unimpressed with the 49 page report given to them last October calling it "sensationalistic BS". Down Right Funny Stuff.

“News is not like an iTunes song; it's perishable. Today's front page is tomorrow's fish wrap, and we don't need to replay it. If anything, a reader benefits more from a second source than repetition from the first. Facts are delivered; songs and movies are created. Facts also can't be owned, so when the Internet places geographically dispersed media in direct competition, the price of facts falls to marginal cost. In digital markets, that's zero.”

The logic error here is astonishing.

If news is scarce then the timely deliverance of the right type of news to those who have a need to know first is a commodity that one can charge money for.

A very good example of this is Rothschild the 18 the century French Banker had carrier pigeons deliver to him the results of Napoleons victory (really lack of) to him in Parris before others were aware of the results. He made millions as a results. The same is true of the internet with news. That is why financial firms can and do charge big bucks for instantaneous market information all the while giving away the same information with a 15 minute delay. To a trader, with a time horizon in seconds, instantaneous knowledge is critical. To an investor, with a time horizon in years, instantaneous knowledge is irrelevant as daily or weekly results are all that matter.

Re: Jon Stewart

It's the exact same problem, just with a different customer. Why would readers pay for news when there's always someone offering it for free? Why would bloggers/aggregators/anybody pay for news when there is always someone offering it for free? IMO it still focuses on why the newspapers need money, rather than why the customer would want to pay.

Re: I believe micropayments will work

The site is kind of light on details, sounds like it's just in the idea stage. Which is fine, everything starts out that way of course. It may still fail to answer the question though. Why should I expend the mental effort to install/configure/sign up for/whatever and then use PayChoice when it's easier not to? I'm not at all sure there are enough people with a burning desire to pay for stuff they currently get for free to support that.

Re:

That may be true of a few niche markets, but in the general news market, it's not clear that the major news organizations can get the news to consumers as fast as other sources, let alone significantly faster. In any case, there are lots of free sources of news, and a few hours later is plenty fast for most readers I would think. I don't see very many people paying a premium to find out a few hours earlier what's going on in Gaza, etc.

If there's an error, I think it's in your assumption that news is scarce. Technically there aren't an infinite number of news providers, but there's pretty much a glut. Again, particular niche kinds of information at the right time to the right people can be charged for, but I'm addressing the news industry as a whole, since I think that's what this article is about.

Re: Re: I believe micropayments will work

PayChoice may well be in the theory stage, but the project I'm working on has plenty of code written for it (contingencymarket.com and 1p2u.com), although is still in the prototype phase.

No-one has to sign up to read, but if they truly wish to reward/commission a publisher then they only need to sign up once. After that, it's just a decision: "Do I want this site to keep on publishing such great stuff?".

If that decision never springs to mind, no worries. For some people it does.

Re:

"To a trader, with a time horizon in seconds, instantaneous knowledge is critical. To an investor, with a time horizon in years, instantaneous knowledge is irrelevant as daily or weekly results are all that matter."